China's plans to create a new crude futures contract to compete with global pricing benchmarks have been shelved due to market resistance, sources with knowledge of the matter said, dealing a blow to Shanghai's ambitions to be a leading energy trading hub.
Potential international participants were worried they would not be able to freely exchange the yuan currency given a Chinese clampdown on capital outflows, the sources said.
Most of the trillions of dollars of oil traded each year is priced off two crude derivatives, US West Texas Intermediate and London's Brent, and executed mainly on the New York Mercantile Exchange.
With Asia becoming the world's biggest oil consuming region, China had hoped to establish its own derivative crude contract on the Shanghai International Energy Exchange, known as INE, that would better reflect market conditions in the region.
But, after struggling to address the concerns of international players, INE has quietly dropped the plan for now, the sources told Reuters.
"This contract as originally proposed is not moving forward," said a trading manager with an oil trading company that was initially planning to take part in the launch, speaking on condition of anonymity.
INE's failure to launch the futures is also a setback for China's ambitions to be a major center for other exchange-based commodity trading.
Lin Boqiang, energy expert of Xiamen University, said the main problem was that China's crude futures would lack the depth of Western exchanges, with much of the trading conducted by State-run Petrochina and Sinopec.
He cited a "concern over lack of liquidity as the industry remains very much dominated by State giants."
Reuters
